Gubbins v. Bank of Commerce

Mr. Justice Sears delivered the opinion of the court. Mo serious question is made as to the items of appellant’s claim. The only questions presented and urged upon this appeal relate to the decree of the County Court allowing the two items of set-off as against the claim of appellant. The first of these items is the amount of salary, which the court found to have been fraudulently paid by the insolvent to appellant. The grounds upon which the trial court found the payment of the salary to have been fraudulent, appear to have been that the salary paid-was excessive in amount, and that it was only authorized by a vote of the board of directors, in which vote appellant participated as a member of the hoard. Various questions are raised in the arguments as to the correctness of the decree in this regard. We need consider but one of them, viz.: whether the insolvent corporation itself could at law or in equity have obtained a recovery of moneys which it had fraudulently paid as salary to appellant, its president. It is, in effect, conceded by counsel for appellees that if the insolvent could not recover the moneys thus paid, then neither could the assignee nor the creditors acting in the County Court in lieu of the assignee, recover them. Bouton v. Dement, 123 Ill. 142; Ide v. Sayer, 129 Ill. 230. We regard the decision of the Supreme Court in McMulta v. Corn Belt Bank, 164 Ill. 427, as decisive of this question. The court there held that where a corporation had unlawfully and fraudulently agreed to pay moneys to one of its officers, and in accord with such agreement had paid a portion of the moneys, that the corporation and the officer being in pari delicto, the courts would neither aid the one in enforcing the agreement nor the other in recovering back moneys paid under it. In so holding the court used the following language: “ Where parties concerned in illegal agreements are in pari delicto, the law will not aid either, but will leave them without remedy against each other. We are, therefore, of the opinion that appellant is not entitled to recover the bonus claimed by him upon the unissued stock, and that under its plea of set-off appellee is not entitled to recover back what has already been paid to appellant.” We think that the doctrine applies equally here, where the court found that the salary paid to appellant was fraudulently paid, because such salary was authorized only by vote of a board of directors of which appellant was a member participating in the vote. The authorities cited by appellees bear upon the right of the corporation to disown such a contract so far as it remains executory, rather than upon the right of the corporation itself to recover back moneys paid thereunder. Decisions of other jurisdictions are cited by appellant as announcing the same rule as held in the MchTulta case, to which it -is unnecessary to refer in view of this decision of our own State. We hold, therefore, that as the insolvent could not invoke the aid of any court at law or in equity to recover back the moneys so paid to appellant, the excepting creditors, who are acting here only in lieu of the assignee, can not thus obtain for the insolvent a recovery thereof. In so holding, we have no occasion to pass upon the question raised as to the right of stockholder or creditor, acting in his own behalf, to reach such funds by independent action, or as to the power of the County Court in general to allow such equitable set-off as the insolvent or its assignee might be entitled to enforce. We come, then, to a consideration of the second item allowed in the set-off, viz., an amount equal to one-half the cost of the riveting machine, being the amount already paid by the insolvent before assignment on account of the purchase of the machine. After a careful examination of all the evidence, we are inclined' to view the finding of the trial court, to the effect that there was fraud in the action of appellant in procuring the purchase of the machine by the corporation and its installment upon the realty in question, as not sustained by the evidence here presented. It is conceded by counsel for appellee that appellant, as president of the corporation, will be presumed to have had authority to transact ordinary business of the corporation. C., B. & Q. R. R. Co. v. Coleman, 18 Ill. 297; Mitchell v. Deeds, 49 Ill. 416; Smith v. Smith, 62 Ill. 493. And in the transaction of such business he was bound only to exercise his best skill and ability, with such care and diligence as might be expected in his own affairs. He can not be charged with the consequences of an honest error of judgment. Morawetz on Corp. 553. It appears uncontradicted that appellant, in making the purchase, acted at the suggestion and under the advice of a Mr. Best, who had been employed by the company to take charge of the boiler department in which the machine was to be used. Also, that a Mr. Scully, a large dealer in boiler supplies, had urged appellant to purchase, stating to him, in effect, that without modern appliances the company could not compete with rivals. Also, that a Mr. Wood, who, like Scully, was interested in the sale of the machine, represented to appellant that the riveter would greatly decrease the cost of manufacture in the company’s business of boiler making. Scully, who was a witness for appellees, testified: “ I might have made the first suggestion to Mr. Gubbins about his putting in a riveter. I might have told him I thought it would be a pretty good thing for him to have it to lessen his expenses, but I think the first suggestion came from some one in Mr. Gubbins’ employ to run his boiler shop. That was Mr. Best, whose first suggestion to Mr. Gubbins was that he ought to have a riveter. I think he rather convinced Mr. Gubbins that it would be a good scheme. About that time I met Mr. Oubbins and we talked it over, and I suggested that it Avould be a good scheme.” Appellant testified: “At the time of the purchase of the riveter I was largely influenced by Mr. Scully. He said that there was no doubt about the times after election; he says, ‘ Gubbins, you will be then in shape if you put these tools in, to be able to make some money,’ and I said, ‘ By gracious, I think I am going to chance it; 1 feel the same Avay; 1 can’t do anything noAv and it is the only alternative. I am going to risk it.’ I told him that I wanted Mr. Oberndorf before he Avent out to go in and do it, but he did not feel disposed to do it. Mow I have brought him out, and I am going ahead or shut up shop. That was the very words I used; try to make some money or else quit.” More than a year intervened between the purchase of the machine and the failure of the corporation, and during that year appellant loaned to the corporation some eleven thousand dollars. While it doubtless proved that the purchase Avas unwise and probably hastened the failure of the corporation, because the machine did not accomplish the work for Avhich it Avas bought, yet we find in all the evidence nothing to indicate that the appellant was guilty of fraud in making the venture. On the contrary it Avould seem that under the suggestions and advice of those presumably competent to advise, the conduct of appellant was such as he Avould naturally and probably have followed had it been in his own private affairs. It would be a harsh doctrine to hold the manager of a corporation liable as for fraud in every instance where an error of judgment might occur in his management. Mor do we find any evidence of fraud in the mere fact that this machine was installed upon ground OAvned by appellant and leased to the corporation. The corporation had no other place of business, and the machine, if purchased, must have been placed there. There is nothing to Avarrant a finding that in so locating the machine appellant had any ulterior purpose, or that he then intended to take any unconscionable advantage of his position of landlord in his dealings with the corporation. In the course of the administration of the insolvent estate the question arose as to whether the machine was a part of the realty, or subject to sale as part of the assets of the insolvent. At the assignee’s sale, which purported to dispose of all the assets of the estate, Scully offered to advance the bid by the sum of $1,800 if he might remove the machine. The attorney for appellant announced that appellant would insist upon all his rights as owner of the fee, upon Avhich announcement the county judge presiding stated that appellant should not be required to make any offer as to his actions in the premises. The machinery was all bid in by one Collins, who, it appears, was bidding in for the benefit of appellant. This state of facts may lead to the conclusion that appellant has, in the administration of the assets, profited by this relation of landlord and lessor of the insolvent. But we are not prepared to hold that this would warrant a conclusion that the original purchase of the machine was made with any view to such an advantage, and hence was fraudulent. It is not contended that there was any error or impropriety in the action of the County Court in disposing of the assets. We hold that upon the evidence here presented neither item of offset should have been allowed. Objections to the sufficiency of the record have been met by the filing of the additional record. We think that the bill of exceptions was properly certified. The certificate shows that the judge who signed and sealed the bill was a judge then presiding in that court. For the reasons above indicated the decree is reversed and the cause remanded.